We reiterate our long-term Neutral recommendation on Novatel Wireless Inc. (NVTL). Although the company fell below the Zacks Consensus Estimates in the first quarter of 2011, management has provided an optimistic outlook for the ensuing second quarter due to significant market traction of its newly launched 4G LTE network capable products. During the last four quarters, Novatel suffered mainly due to lower sales of its 3G access products and ongoing customer transition to next-generation (4G) products. Currently, the company is gradually upgrading its existing customers to its innovative 4G product suite.

However, we remain concerned regarding Novatel’s business with Verizon Wireless, an important customer for its MiFi intelligent hotspots. Moreover, the company is facing increasing competitive pressure from low-cost Asian manufacturers. Business performance for Novatel depends on a limited number of customers, who represent a significant portion of the company’s total revenue. During 2010, the top two customers accounted for more than 83% of total revenue. Loss of any of these customers will adversely affect the company’s business model.

Novatel has acquired privately held Enfora, a machine-to-machine (M2M) intelligent asset management solutions provider. Enfora has a long list of clientele including several enterprises, applications service providers, OEMs and distributors. This acquisition will place Novatel firmly in the fast growing M2M markets. Various industry sources estimated that mobile M2M market may reach $20 billion by 2014.